Few parts of the U.S. economy better illustrate the benefits and perils of the Federal Reserve’s near-zero interest-rate policies than the auto industry, and few will be as exposed to the fallout if central bank officials decide this week to end America’s seven-year era of rock-bottom borrowing costs.

Auto debt owed by U.S. households in the second quarter this year rose above $1 trillion for the first time, fueling car purchases and a Lazarus-like revival for an industry brought down by the 2007-2009 financial crisis. (…)

What happens next for the industry depends a great deal on how aggressively the Fed moves. If it raises rates slowly, then froth in the industry—including a profusion of subprime borrowing—could end up hurting borrowers and lenders. If it moves aggressively, it could take a big bite out of sales. (…)

In the U.S. car capital, the auto explosion has helped reduce the unemployment rate in the Detroit metropolitan area to 5.8% in July from more than 16% in 2009. Among other hopeful signs: Whole Foods Markets, the upscale chain, opened a store in midtown Detroit. Bidding wars have replaced home foreclosures in some suburban neighborhoods. And car makers are paying hourly workers profit-sharing bonuses as high as $9,000 a year.

“It really is a boom,” said Ellen Hughes-Cromwick, an economics professor at the University of Michigan in Ann Arbor and former chief economist for Ford Motor Co. “If you came here and you compared it to what happened in the late 1990s, it is exactly the same.” (…)

Employment agencies for retailers and logistics companies say they are having trouble finding warehouse workers to stock early holiday inventory and employees to train for work in fulfillment centers, where holiday orders will be packed and shipped.

(…) As a result, retailers and delivery companies expect to have to raise starting pay in some places. (…)

Starting warehouse wages, which have been stagnant for years, have been rising by about $1.50 to $3 an hour to attract workers in some markets, according to logistics staffing firm ProLogistix. The firm said that in this holiday season, temporary jobs—especially at e-commerce companies—start in a range of between about $11 and $13.50 an hour, up from between about $9 and $11, though it varies significantly by region.

Ozburn-Hessey Logistics LLC, a third-party logistics provider, is raising its hourly wages by about 10% in some markets to compete for talent in e-commerce hot spots, such as around Louisville, Ky., and Memphis, Tenn., where UPS and FedEx, respectively, operate some of their biggest package-sorting hubs. (…)

The United Auto Workers union reached a tentative labor deal with Fiat Chrysler Automobiles NV that will eventually remove a controversial two-tier wage system that pays newer hires less than more-experienced co-workers doing the same jobs, according to people familiar with the agreement.

Under the current arrangement, newer factory employees earn about $9 an hour less than more senior employees, a point of friction for many rank-and-file workers. The new structure will eventually phase out the two classes of wages over time, the people said.

Pay for entry-level workers hired after 2007 is currently capped at $19.28 an hour. The new deal would raise that pay ceiling after a number of years closer to $25 an hour, the people said, though the precise time frame and dollar amount couldn’t be learned. Veteran workers earning more will keep their wages until they no longer work for the company, leaving the other wage as the new pay standard for auto workers going forward, the people said. (…)

Fiat Chrysler is the smallest and least profitable of the Detroit Three car makers. With about 45% of its hourly workforce earning the lower wage, the company has a labor cost advantage of about $9 to $10 an hour over rivals GM and Ford, putting it more on par with Asian rivals such as Toyota. (…)

Industrial production, which measures output in the manufacturing, utilities and mining sectors, fell a seasonally adjusted 0.4% in August from July, the Federal Reserve said Tuesday. It was the sixth time in eight months that the measure fell from the previous month.

Capacity utilization, which measures industrial slack, fell to 77.6% in August from 78% in July.

Meanwhile, industrial production for July was revised up to a 0.9% rise from an initial estimate of 0.6% growth.

Manufacturing output, which accounts for almost three-quarters of overall industrial production, fell by 0.5%, driven by a 6.4% drop in production of autos and auto parts after an increase in July of more than 10%. Manufacturing output was up 1.4% in August from a year earlier.

U.S. Business Inventory Total Rises

Total business inventories edged up 0.1% in July (2.6% y/y) after a 0.7% advance in June, revised slightly from 0.8% reported initially. The resulting 3-month growth was 3.0% (AR), down from 5.0% in June. Total business sales also increased 0.1% in July (-2.7% y/y), less than June’s 0.3%, which was revised from 0.2% reported before. July’s 3-month growth rate was 3.1%, compared to 5.0% in June. The overall inventory/sales ratio was 1.36 in July, the same as in June, which was revised down from 1.37.

The Empire State Factory Index of General Business Conditions remained negative during September, nearly the weakest reading since the recession. The latest figure of -14.67 compared to an unrevised -14.92 in August. These diffusion indexes were the lowest since April 2009. The latest disappointed expectations for -3.0 in the Action Economics Forecast Survey. The data are reported by the Federal Reserve of New York and reflect conditions in New York, northern New Jersey and southern Connecticut.

Based on these figures, Haver Analytics calculates a seasonally adjusted index that is compatible to the ISM series. The adjusted figure eased to 44.9, also a six-year low. (…)

New orders and shipments also were close to the lowest levels since 2009, while vendor delivery speeds quickened to the fastest pace this year.

(…) Prices received fell into negative territory, also for the first time since 2009.

Expectations for business conditions also deteriorated to the lowest positive level since January 2013. A sharply reduced 39.6% of respondents expected improvement. Each of the component series deteriorated m/m.

Worries Rise Over Global Trade SlumpA sharp drop in global trade growth this year is underscoring a disturbing legacy of the financial crisis: Exports and imports of goods are lagging far behind the pace during past expansions, threatening future productivity and living standards.

For the third year in a row, the rate of growth in global trade is set to trail the already sluggish expansion of the world economy, according to data from the World Trade Organization and projections from leading economists. Before the recent slump, the last time trade growth underperformed the rate of an economic expansion was 1985.

Since rebounding sharply in 2010 after the financial crisis, trade growth has averaged only about 3% a year, compared with 6% a year from 1983 to 2008, the WTO says.

Economists blame the slowdown on many factors, from China’s shift away from certain kinds of manufacturing to a decline in international investment. They also point to a dearth of major new trade agreements and the erection of trade barriers after the 2008 downturn, as well as a newfound reluctance by companies to source products and components far from home. (…)

For the first seven months of 2015, U.S. exports dropped 5.6% to $895.7 billion. The value of South Korean exports shrank a revised 14.9% in August from a year earlier, the sharpest fall in six years, as shipments to China dropped. Chinese imports in August fell 13.8% in dollar terms from a year earlier, after an 8.1% decrease in July. (…)

The annual rate of inflation declined to 0.1% in August from 0.2% July, the European Union’s statistical office said Wednesday. That marks a downward revision to Eurostat’s flash estimate of 0.2% and pushes annual inflation further away from the ECB’s target of just below 2%. (…)

There were more signs of easing inflationary pressure Wednesday, as Eurostat reported slowing growth in labor costs across the bloc. Eurozone labor costs, for every hour worked, rose 1.6% in the second quarter from the same period last year. Gross wages rose 1.9%, while non-wage costs were up 0.4% over this period. In the first quarter, labor costs had increased by 1.9%.

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